This is a common question asked by people wanting to move out of their family homes for the first time. Although purchasing a house will provide you with a reliable asset, it really does depend on your current situation.
Is it a good time to buy a house, though?
“We completed more mortgages in March than any month in the 40-plus years we have offered home loans, including those for over 3,000 first-time buyers.”
Michelle Andrews, HSBC UK’s head of buying a home1
The property market isn’t showing signs of slowing down, but this doesn’t mean you should panic buy. Buying or renting a house should be answered from the following scenarios:
- How long you’re going to be living in a specific area. Those who like to move around a lot should look to rent instead of buying (this is due to the additional costs of buying a house).
- The total amount you have saved for a deposit and if it is enough to cover the minimum mortgage requirement.
- If you are looking to buy, are there any government schemes that you could use.
- How much security do you want? Buying a house will provide you with peace of mind knowing you’ll never get evicted. However, if you can’t pay your mortgage one, you may face some serious consequences.
Is it better to rent or buy?
Although both provide outstanding benefits to a set of different individuals, what should you personally do?
It’s hard to give a solid answer on such a broad topic, so I’ve broken it down into several sections. This should enable you to decide which is personally best for you.
Asset vs Liability
What would you rather spend your income on? Something that’ll turn into an asset one day, or something that will be a liability month in and month out? Although you’ll pay for your mortgage monthly like renting, one day, you’ll completely own the house. You can then either stay in it mortgage-free or instead rent it out and use that rent money to pay off another mortgage.
Fixed vs Flexibility
When applying for a mortgage, your lender will provide you with the details on how much you need to pay back each month. This is a fixed-term whereas renting can be flexible and you’re able to move in and out of places depending on your financial and personal situation.
Independence vs Accountability
How committed are you to the idea of having the accountability of a home? A home in which you’re going to be paying off for around 25+ years? Or do you like to travel and require the freedom that renting a house has to offer?
Savings vs No Saving
To apply for a mortgage, you’ll need to prove that you have enough funds to pay for the down payment. You’ll also need to show proof of your income over a set number of years, depending on your type of work. You will need to provide more if you are trying to get a self employed mortgage. If you haven’t got enough savings or a high enough income, renting will be the better option for you.
Renting vs Buying Pros and Cons
We’ve given you some comparisons that may answer your question about whether you should rent or buy. However, we haven’t discussed the actual pros and cons that both of these provide.
Advantages of Renting
- Freedom to move to different locations if you don’t have a resistance contract for a set period of time.
- Over the years, property prices may fall. If you encounter this while paying for a mortgage, you’ll still pay the original price. While renting, this isn’t an issue.
- In the UK, the average mortgage payments over the past 10 years have been cheaper than rent. However, In some locations such as London, it’s cheaper to rent than buy.
- By renting, you won’t need to pay a huge deposit for the property. Therefore, this might free up some cash so you’re able to rent a nicer home.
- If a problem occurs in the property you’re renting and requires maintenance, the landlord will pay for this.
- Getting the correct mortgage and finding the right home is a much longer process than obtaining a rented property.
Disadvantages of Renting
- Money paid for rent will completely go to your landlord, and you’ll see none of it. However, paying off your mortgage will lead you to owning the property, you’ll be entitled to sell it, rent It out or live in it mortgage-free.
- If you want security, renting isn’t for you. You’re able to get evicted on the landlord’s terms, whereas this event will only happen with a mortgage if you haven’t paid your lender.
- As you grow old, you’ll have nothing of value. A house is a reliable asset to have, especially when you reach your retirement age, as you may be able to downsize and free up some money.
Advantages of Buying A House
- Instead of wasting money on liabilities (in this example, rent), paying for a mortgage that will provide you with an asset is a much better investment.
- Unlike renting, if your properties price increases over time, you’ll benefit from this when it comes to selling the house.
- If you own a house, you’re able to renovate it at your own will. Apart from some agreements, you may need to get signed off by your neighbours before any building occurs.
- Money that is spent on renovating your home will also increase your property’s overall value when you want to sell it. Check out our post on the best ways to add value to your house.
- You’re much more secure if you purchase a house, as there is no landlord to evict you.
Disadvantages of Buying A House
- Before buying a house, you’ll need some initial financial stability and initial savings/ deposit. You’ll need to have enough money and income to prove you can pay for the initial deposit, like stamp duty, legal cost, insurances, as well the ongoing mortgage payments.
- Although you’ll eventually own your home when the mortgage payments are funded. While in the agreement set by the lender, if you miss payments, they have the right to evict you.
- Unlike renting, you’ll be liable for any repairs or maintenance that must be undertaken to the building. Some unexpected housing problems can quickly rack up in price if you’re not careful.
Whatever you choose to do, be sure to look at all of the different costs of running a house.
James Banerjee is an Account Director who graduated from the University of Kent in 2014. He works in SEO on clients such as HSBC UK and Nestle and he has a keen interest in personal finances and money-saving advice.
